The Future of Risk Management Doesn’t Play Defense, Part 2

As Walmart CEO Doug McMillon pointed out in an earnings call: “Changes in customer behavior have accelerated the shift to e-commerce and digital[.] We’re convinced that most of the behavior change will persist beyond the pandemic. The reality is that customers want everything. They want to go online to see hundreds of millions of items and to find anything they’re looking for. But many also want to have a delightful experience in a physical store environment.”

And he should know. Walmart is one company in particular that’s diving into the tech boom, making the most of its established business while moving with the times.

Consumers have changed. They now have nearly unlimited choice of how and where to shop. They expect a seamless experience. They don't value accuracy over speed; they want both. Nearly 53 percent of customers told Signifyd in a survey that they will give a retailer no more than one chance after a bad online experience before abandoning it.

And sometimes it seems retailers’ opportunities to "insult" customers are endless, from delaying or declining legitimate orders to questioning a return or a legitimate chargeback. It takes only one wrong move and that customer is no more.

It’s an unenviable position. Being right and being fast is a must. Retailers need to be right when they decline an order. Two-thirds of consumers said they would stop shopping with a retailer that declined one of their orders for no apparent reason, according to the Signifyd survey, which was conducted with marketing research company Upwave.

The Customer Journey: Fraud and Payment Decisions

In the era of customer experience, fraud prevention has become risk intelligence. The work is no longer about being a defensive crouch, protecting the enterprise against harm. It’s now about unlocking revenue through fearless commerce.

Risk professionals now apply their decisioning skills and technology across the entire buying journey. They optimize revenue and have a clear connection to the enterprise’s top line.

Where Should Risk Teams Put Their Focus?

There was a time when risk professionals focused on avoiding chargebacks, defending declined orders from finance folks who argued they were turning away sales, that they were exercising caution at the expense of speed and cutting costs.

The trouble is, the best way to avoid chargebacks is to not ship any orders. That, however, isn't good for the business. And, of course, it’s not good for the customer experience either. Instead of avoiding chargebacks, we should look towards real-time risk MOs.

Let’s look at three traditional focuses of fraud teams and reconsider them in the era of risk intelligence:

1. Historically risk teams were taken to task for declining too many orders. Incorrectly declining legitimate orders is particularly devastating to customer lifetime value. Legitimate customers whose orders are turned down for no good reason abandon retailers — often for good. Remember that 66 percent said they would abandon a retailer if it turned down their order for no apparent reason — a typical false decline scenario. The constant scrutiny can lead a risk team to take a defensive position. Proving that an order should have been declined is a tough task. The order was never completed, so there's no way to track whether shipping the order resulted in a valid chargeback. Best to look towards seamless approval rates, which fosters a growth mindset, among other benefits.
2. Preventing loss above all else — including speed. There might have been a time when consumers shopped with a certain retailer because they wanted what that retailer had to offer. If the customer wanted what the retailer had, the customer had no choice. That’s not now. That hasn’t been true for a long time. Consumers not only expect high-quality products, they expect to be able to buy through the channel they prefer and to have their orders in hand quickly. That doesn’t mean accuracy isn’t important; it just means that speed has an equal if not greater weight in building customer experience. The focus needs to be speed of decisioning — i.e., determining if an order should be shipped or not in milliseconds.
3. Cutting costs — risk and fraud management has historically been viewed as a line item. Protecting the business was a cost, and as a cost, the focus was on minimizing the burden, not building the functionality. Now, risk intelligence is about enabling strategic objectives.

The KPIs as laid out above are as much about a shift in thinking as we enter this new era of e-commerce. Think about where you want to focus your risk team’s energy and intelligence and how best to build the processes that will lead to more efficiency and creativity, which leads to revenue optimization.

And remember, the future of risk management is very much on the offense.

J. Bennett is the vice president of operations and corporate development at Signifyd, where he leads a global cross-functional team to deliver on Signifyd's guaranteed value proposition as well as explore, design and execute new opportunities in the payments, risk and e-commerce spaces.